chips - All posts tagged chips

Shares of Intel (INTC) today rose 81 cents, or 2.4%, to close at $34.06, amidst a mixed bag of commentary from the sell side.

Nomura Equity Research‘s Romit Shah, who was at Intel’s presentation at the Mobile World Congress today, has a Neutral rating on Intel’s shares, but nevertheless offers up some of the optimistic news from CEO Brian Krzanich — specifically, the formal unveiling of plans for Intels’ “SoFIA” modem and apps chip for tablet computers:

At MWC, Intel announced the launch of its 5-mode Sofia LTE solution for tablets, phablets, and smartphones. Intel indicated that 20 companies including ASUS, Jolla have selected the Sofia platform. In addition, Intel also announced its 14nm x5 and x7 Atom SoCs (formerly code-named Cherry Trail) for tablets and 2-in-1s. Intel also announced its Cat 10 LTE thin modem supporting LTE connectivity from smartphones to PCs.  Intel also sees good progress in reducing mobile losses by $800m this year. Key drivers being smaller BOM differential in Sofia LTE and lowered investments in mobile due to partnerships with Rockchip and Spreadtrum. Intel indicated that it expects to use its own process technology to build the next gen Sofia LTE, which we expect to be launched in 1H16.

Intel has said that SoFIA is among parts that will help it stem huge losses in tablets.

One fellow who believes that is David Wong of Wells Fargo, who has an Outperform rating on Intel shares, noting today that data out Friday from research firm Strategy Analytics suggest Intel is gaining ground in chips for tablets.

Apple’s (AAPL) iPad, which uses Apple’s own chips, slipped to 26% of the tablet market in 2014, noted strategy analytics, down from 32.6%, and Samsung Electronics (005930KS), which uses some of its own chips in its tablets and some from Intel and others, slipped to 17% from 18.3%, the firm reports.

They both lost ground to “white box” tablets running other chips, perhaps many of them running Intel parts. White box tablets rose to 29% of the market from 24% a year earlier, ” via entry-level and ultra-low priced Tablets in emerging markets and as holiday promotions in developed markets,” said Strategy Analytics.

With Intel’s progress already, Wong thinks new parts such as SoFIA will help Intel gain more share while reducing its losses:

Our guess is that Intel will take action to limit tablet processor growth in low end tablets during the first half of 2015 as its Bay Trail and Cherry Trail tablet processor products still require subsidies when used in low end tablets. o However, we expect that in the coming week, Intel will launch its first SoFIA products. SoFIA is a family of tablet and smartphone processors (with integrated modems) that will not require any subsidies when used in low end tablets. o We think that the first SoFIA chips might ramp into volume in tablet products in 2H15. o In the next few months we also expect Intel and Rockchip will launch SoFIA-based chips jointly designed by the two companies, targeted at the Chinese tablet market. o We think that Intel’s will maintain its tablet processor market share in the 16-20% range in the first half of 2015 and then begin to show renewed share momentum in the second half of 2015 and through 2016. o We believe that by the end of 2016 Intel’s tablet processor revenues could have grown to several hundred million dollars per quarter, from being negative in the December 2014 quarter. We discuss Intel’s tablet and smartphone chip dynamics and products in more detail in an Intel note dated Feb 11, 2015.

For the third time ever – and the first time in 15 years — the Nasdaq Composite Index closed above 5,000 Monday, a mark many investors doubted would ever return. The milestone caps a 12-year rally that erases the historic losses of the dot-com era.

The Nasdaq Composite Index rose 44.57 points, almost 1%, to close at 5,008.1, returning to the glory days it had not seen since 2,000.

While Freescale, which rose 12%, is a NYSE name, NXP, which is part of the Composite, jumped 17%. HP and aruba shares were flat on the deal, which had been rumored last week.

(There were also a couple other smaller deals: Mitel Networks (MITL) of Kanata, Ontario said it will spend $560 million in cash and stock to buy Mavenir Systems (MVNR), and Proofpoint (PFPT) said it will spend $40 million to acquire security technology vendor Emerging Threats.)

The merger enthusiasm propelled the rest of the index higher.

Among the Nasdaq’s Top 10 names, the two biggest movers were Intel (INTC) and Cisco Systems (CSCO), both holdovers from the dot-com era. Intel rose 2.4% to $34.06 and Cisco was up 2.3% to $30.19. Apple (AAPL), which today comprises 10% of the Nasdaq’s market weight had a relatively quiet day, up 0.5% to $129.09.

The Nasdaq first hit 5000 on March 9, 2000. It managed to close above that level on two consecutive days, before beginning its 80% descent, which bottomed at 1,114 on Oct. 9, 2000.

On an inflation-adjusted basis, the Nasdaq has more work to do. Using an annual inflation rate of roughly 2.2%, the Nasdaq would have to reach 7000 to match its March 2000 level.

Among gainers and losers elsewhere in the info-tech segment of the Nasdaq, information technology components notching gains today included microcontroller chip maker Atmel (ATML), rising over 6% to close at $8.86, perhaps boosted by positive words from Francois Meunier and colleagues naming it as one of their top Internet of Things stock picks.

Another chip name rising was Cypress Semiconductor (CY), which has a booth here at the Mobile World Congress in Barcelona and may have produced some positive developments, although there’s been no Street coverage yet to indicate that. Among releases from the company today was an item about a fingerprint identification product using its touch-sensor technology.

Cypress shares closed up $1.29, or 4.3%, at $31.40.

Skyworks Solutions (SWKS), a prominent vendor of wireless chips, also here at the show, got some positive mention from Mike Walkley of Canaccord Genuity reiterating a Buy rating, and an $81 price target, writing that he’d had a productive meeting with management at the show.

Management sees strong growth trends for the RF industry highlighted by a strong mix of 5-mode and even 6-mode smartphones for the Chinese market. With China Unicom and China Telecom ramping LTE smartphones, Chinese carriers requesting increased RF content to support roaming outside China, and with carrier aggregation LTE smartphones in China later this year, Qorvo management indicated strong RF content growth for LTE smartphone units consumed in China. Further, management anticipates total LTE units for the China market to grow from 120M units in 2014 to 300M units in 2015.

Among decliners, the biggest in infotech was Vasco Data Security (VDSI), which makes devices for “two-factor authentication.” Its shares closed down $2.28, or almost 9%, at $23.34, though there was no apparent bad news. The stock is thinly covered on the sell side.

Another loser on this historic day was Rovi (ROVI), makers of the popular Internet-TV box, its shares declining $1.99, or 8%, to close at $22.89.

In this case, it appears the sell-off was a comedown from a big run-up on Friday, after Reuters’s Liana Baker, Olivia Oran, and Nadia Damounireported that Rovi has been interviewing bankers to explore options for itself, after receiving pressure from hedge fund Engaged Capital to boost its shares.

However, Brean Capital’s Todd Mitchell, who has a Buy rating, and a $31 price target, wrote today in a note to clients that talking with bankers should highlight the underlying value of the stock.

The Nadaq Composite Index today crossed 5,000 for the first time in 15 years, hitting 5,001.29, before backing off to the current 4,984.16, still up half a point. My colleague Alex Eulereflects on the landmark.

It’s a busy Merger Monday, kicking off with NXP Semiconductors’s (NXPI) $11.8 billion cash-and-stock agreement to buy chip maker Freescale Semiconductor (FSL), a deal the two say will create the leading brand in automotive chips and microcontrollers.

NXP stock is up $14.30, or almost 17%, AT $99.16. FSL is up $4.19, or almost 12%, at $40.30, rising with NXP’s stock though the deal offers no premium to its prior close.

Second to that is Hewlett-Packard’s (HPQ) announcement it will purchase wireless networking vendor Aruba Networks (ARUN) for $2.7 billion in cash, for a total consideration of $3 billion including Aruba’s cash and debt. Analysts questioned whether the deal will actually do much for HP.

In a deal perhaps as surprising as the NXP announcement, Mitel Networks (MITL) of Kanata, Ontario said it will spend $560 million in cash and stock to buy Mavenir Systems (MVNR), equivalent to $17.94 per share of Mavenir.

Mitel has long been a provider of things such as PBX voice switching systems; Mavenir has positions in things such as the “evolved packet core,” a form of telecom switching equipment that is proliferating. It also participates in the market for so-called Voice-over-LTE, the next generation cellular voice technology.

Mitel said the deal would ”Adds a new high-growth business unit for Mitel delivering collaboration services across mobile and enterprise networks.”

Matthew Robison of Wunderlich Securities, who has had a Buy rating on Mavenir, writes that it is unlikely the stock will find a competing bid: ”Despite the complementary offering, recent sales of shares purchased as a venture investor imply to us that Cisco [Systems (CSCO)] will not bid for Mavenir.”

And lastly Proofpoint (PFPT) said it will spend $40 million to acquire security technology vendor Emerging Threats. Proofpoint shares are up 48 cents, or 0.9%, at $57.12.

Even before today’s spate of deals, there was rumbling of new M&A talk about storage giant EMC (EMC), whose 80% holding in VMware (VMW) has been the subject of speculation for a long time.

Reuters’s Nadia Damouni and Liana Bakeron Friday reported that the company has “decided against spinning off” VMware “after reviewing the idea over the last several months following pressure from activist investor Elliott Management,” citing three unnamed sources.

Srini Nandury of Summit Research Partners , who has a Buy rating on EMC stock, pens an item today saying it’s a good thing they’re not, as ”We always believed spinning off VMware would be detrimental to the long-term viability of EMC.” Nandury writes that his sum-of-the-parts model gets him to a new price target of $34 for EMC, up from $31.

The stock is at $28.75 currently, down 19 cents, or 0.7%.

Apple (AAPL) stock is up 24 cents at $128.70 following yet another price target increase, this one form Katy Huberty of Morgan Stanley, who raised her target to $160 from $133, reiterating an Overweight rating, writing that Apple is expanding categories at a faster clip, bolstering its overall “ecosystem.”

Meantime, the Mobile World Congress is going on in Barcelona, where I’m attending keynotes and panel discussion and meeting with companies. As I noted earlier, the category of wearable technology has a small but growing presence amidst the smartphones and networking equipment here.

Among the afternoon’s big tidbits was the on-stage session with Google’s (GOOGL) Sundar Pichai, who confirmed speculation about the company getting into the wireless business, saying Google will start off small to “show what’s possible,” as reported by Business Insider’s Jay Yarow.

This evening’s keynote panel at the conference is a conversation between Facebook (FB) CEO Mark Zuckerberg and Wired’s Jessi Hempel about Facebook’s Internet.org effort to bring Internet use to under-served parts of the world. Three telecom partners appeared onstage with Zuckerberg: Airtel, Telenor, and Millicom. More on that later.

Wireless chip giant Qualcomm (QCOM) held a press event Monday at the Mobile World Congress in Barcelona, giving the impression it is in no way slowing down after two major challenges in the last month: losing the slot for its processor in Samsung Electronics‘s (005930KS) newest flagship phone, the “Galaxy S6,” unveiled last night here at the show; and having to pay nearly a billion dollars in fines to China‘s government after falling afoul of that country’s anti-monopoly law.

The company’s president, Derek Aberle, led the talk — his boss, CEO Steve Mollenkopf, is also giving a talk here this week.

If the company was smarting from the loss of business at Samsung, it was also ready to move: Aberle talked up the great friendship Qualcomm has with another prominent vendor, HTC (2498TW).

HTC’s co-founder and CEO, Peter Chou, came onstage to relate fond memories from a partnership between the two that has lasted 18 years. I recalled sitting around the conference table with Qualcomm founder Irwin Jacobs and his son, Paul, back in the day, when there was no such thing as a smartphone, and most mobiles were as big as a brick. “We joked that the phone projects back then were for the military,” said Chou, the devices were so big and heavy, one could use them as weapons on the battlefield.

Aberle noted that in addition to HTC, several other vendors are using Qualcomm chips prominently, including China’s Xiaomi, in its “MiNote Pro,” and that other prominent China vendor, Oppo, and Microsoft (MSFT), and LG Electronics (066570KS), which uses the 810 in its curved “G Flex 2.”

Perhaps as a nod, however, to certain implications of not getting the S6 business, Aberle said the company willhenceforth use the Snapdragon brand to represent both integrated parts that combine application processor and modem, but also sales of standalone modems — in other words, when Qualcomm doesn’t get the apps processor, as in tbe Samsung incident.

Other things discussed included small cells, lightweight base station equipment to help carriers extend their networks in dense urban environments. Aberle said the company has the first integrated chip to support “LTE-U,” a form of cellular that operates in unlicensed spectrum at 5 gigahertz.

The company also announced some end user tech being integrated into its chips. One is “Sense ID,” a form of fingerprint ID that can “see” a fingerprint through multiple layers of glass, and also detect even when the sensor gets sweat or moisture on it, something that commonly throws off other fingerprint readers.

Then there’s “Zeroth,” which sounds rather like someone pronouncing Xerox with a lisp. The technology, which is going to be standard issue with the next high-end chip from Qualcomm, uses machine learning and artificial intelligence.

One practical use is to allow a smartphone’s camera to figure out what scene you’re trying to shoot — outdoor, landscape, still life, portrait, etc.

On stage, the company showed a demo of how Zeroth can detect that, say, there is fruit in a bowl in front of the camera, but no humans present, and that someone is taking pictures indoor. That tells it enough to classify your scene as a still life picture. That way, the phone can automatically adjust the proper aperture settings, etc.

What Qualcomm didn’t get too much into is the future of its customCPU, which has in past been branded Krait.

Today, Qualcomm said it will be henceforth named “Kryo,” but Aberle didn’t offer much in the way of specifics. It will appear

Kryo might as well be a reference to cryogenic sleep: A new Krait core has been expected for sometime. A year ago at this show, the company said they would be talking in future about Krait but nothing was heard last year.

Qualcomm’s plans for Krait were upended when Apple (AAPL) stormed the smartphone world in late 2013 with its “A7” chip inside the iPhone 5S. That was the first part to run 64-bit computing on a high-volume mobile device.

That development prompted Qualcomm and everyone else to scramble to offer 64-bit options, thus pushing to the background custom offerings such as Krait that would take longer to come to production.

Today’s high-end smartphones, such as the G Flex 2, using the 810, make do with ARM Holdings (ARMH) cores, the “A53” and “A57,” which can juggle different workloads.

Today’s talk offered merely a tantalizing glimpse of Kryo in the form of a slide:

Chip maker NXP Semiconductors (NXPI) this morning announced it will buy Freescale Semiconductor (FSL) for $11.8 billion in cash and stock, and a total of $17 billion considering Freescale debt, the biggest tech buy in a long time.

The deal, said the companies, will make the combined entity the biggest maker of chips for autos and the biggest vendor of “general-purpose” microcontroller chips.

The deal is the second major chip deal this year, following Avago Technology‘s (AVGO) $609 million bid for Emulex (ELX) last week.

It is also bigger than last year’s $7 billion deal for Concur Solutions by SAP AG (SAP), and comes closer to the $13 price tag Hewlett-Packard (HPQ) paid for Electronic DataSystems back in 2008.

The nominal $11.8 billion purchase price for Freescale, excluding debt, is structured as part cash, part stock:

Under the terms of the agreement, Freescale shareholders will receive $6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held at the close of the transaction. The purchase price implies a total equity value for Freescale of approximately $11.8 billion (based on NXP’s closing stock price as of February 27, 2015) and a total enterprise value of approximately $16.7 billion including Freescale’s net debt.

With NXP ordinary shares closing Friday at $84.89, the stock portion is worth $29.89, making the full price $36.14 per Freescale share, barely any premium to Freescale’s close of $36.11 on Friday.

Correction: A prior version of this post mis-stated the per-share effective price of the deal. My apologies for any confusion caused by the error.

Centre de convencions international, once again the site of the Samsung unveiling of a Galaxy phone, March 1st, 2015.

The curving lines of the new Galaxy S6 “Edge,” in a silver finish.

Crowds from the Mobile World Congress show are milling about outside the Centre de convencions international in Barcelona awaiting the next Samsung Electronics (005930KS) unveiling of a “Galaxy” flagship phone.

This event has been preceded by quite a bit of speculation and controversy, including the revelation in January that Qualcomm (QCOM), long the main processor supplier to Samsung, would not be included.

It has been speculated that the device will use Samsung’s ability to make curving screens, as seen in the “Galaxy Note Edge.”

Shin notes the phones feature the “Best display,” at 557 pixels per inch, and the best cameras, with an f.19 aperture. The devices come with wireless charging built in.

The phones have a special pixel layer in the display to add “depth,” and the colors are “gem” like—green, gold, etc.

Galaxy S6 in a metallic blue.

The company takes a dig at Apple‘s (AAPL) iPhone: The metal used is “50% stronger than standard metals … This phone won’t bend!”

The phone has the fastest charging time of any phone, the company says. Samsung has finally built the battery into the phone. “We refused to do this for a long time.”

The phone can charge enough in ten minutes to go for four hours of use.

Samsung says the device’s camera will “excel in all lighting conditions” via its f1.9 aperture and “real-time high-dynamic range.” The lens is an improvement from the 2.4 lens of the past. The camera is always on standby, and so it “launches in less than a second.” The front-facing camera is a 5-megapixel sensor, the rear is 16 megapixels.

The company said its Samsung Pay effort, coming this summer in the US and Korea with support from major financial institutions, uses not just NFC wireless signals but also something called “MST” that Samsung made up that makes the device compatible with “mag-stripe” card readers that don’t support NFC.

In a nod to Apple’s battles with Apple Pay hold-outs such as Rite Aid, the company said Samsung Pay is “electronic payments done right.”

The phones will be available starting April 10th in 20 countries in models using 32, 64 or 128 gigs of memory.
Following the formal presentation, media were herded into an adjoining, brightly lit space, filled with tables staffed by docents in white outfits, who showed off the new devices to the press. There were also some models on stands inside glass vitrines. There was a long snaking line of phones on stands, forming an S shape, that attracted much attention.

Gadget press scramble to take pictures of Galaxy 6 phones shown off by docents working the event.

Gadget press were enchanted by a curving S line of Galaxy S6.

An army of docents help the gadget press examine the new Galaxy S6.

Attendees at Samsung’s “Unpacked” received a silver bag of schwag containing …

Shares of organic light-emitting diode technology maker Universal Display (OLED) are down $2, or 5.4%, at $34.76, following a report yesterday afternoon of Q4 revenue that topped expectations, profit that missed consensus, and a below-consensus revenue forecast for this year.

Management said the $200 million forecast for this year’s revenue has a potential for 5% downside, but perhaps as much as 15% upside.

Today, regardless of the numbers, the take-away from most weighing in is that the 15% potential is what matters.

For there are encouraging prospects for uptake of OLED market in general and for the company’s materials, with TV sets, mobile displays, and things such as wearables all sources of business. Samsung Electronics (005930KS) and LG Display (LPL) are the two prominent customers for Universal.

Needham & Co.’s James Ricchiuti reiterates a Buy rating, and a $40 price target, writing that “while OLED shares will probably pull back on the reset to Street numbers, heightened activity at Samsung and LG Display suggests there is significant upside to estimates over the next two years.”

Ricchiuti notes Samsung was 78% of the company’s sales last quarter, driven by “green emitter material” sales of $16 million. LG sales declined, but Universal signed a commercial license agreement with LG only after the quarter closed.

Ricchiuti finds the forecast significant:

Guidance assumes $60M license payment from Samsung and factors in a quarter lag in earned royalties from LG. The latter is particularly noteworthy relative to the 2015 guidance insofar as the ramp in OLED-TV production and seasonally strong selling season in December won’t be reflected in UDC’s revenues until Q1 of 2016.

Ricchiuti cut his 2015 estimates to $205 million and $1.02 from $223 million and $1.40. His 2016 view is $252.9 million and EPS of $1.50.

Cowen & Co.’s Robert Stone reiterates an Outperform rating, and a $50 price target, writing that investors shouldn’t worry too much about the forecast, because it leaves “room for 9% upside if OEMs execute.”

For one, mobile business from Samsung and TVs from LG are a swing factor:

The ramp of LG TV production and a rebound in Samsung mobile display business are likely the biggest drivers of the over/under in our view. Host material contribution should be down Y/Y, but an exit from the segment is not expected, and new versions are in development. If Samsung executes on expanded sales to third parties, downside should be limited. We expect LG to hit targeted 600K TVs if there are no capacity glitches. On the margin, flexible displays and lighting should also contribute.

In addition, Apple‘s (AAPL) media event on March 9th may highlight the use of OLED tech, assuming use of such technology in the Apple Watch, which could raise the general profile of the stuff:

An event on 3/9 should fill in more details about the Watch and Apple Pay. We believe that an iconic brand adopting AMOLED technology for the first time is likely to boost investor sentiment for OLED more than the incremental revenue from a small-area, flexible display. We expect future iPhone adoption to be enabled by a broader base of suppliers (and potentially flexible substrate capacity) to include Samsung, LG, and at least one of several emerging players (JOLED, AUO, Innolux, etc.).

Stone cut his 2015 estimates to $220 million and $1.20 from a prior $225 million and $1.36.

Hendi Susanto with Gabelli & Co. reiterates a Buy rating, writing that the $200 million forecast this year was above his own $195 million estimate, given he had expected weak green “host” material sales.

More important, Susanto, like Stone, sees the OLED market boosted by interest on multiple fronts:

OLED TV. LG is planning to invest $1 billion in 2015 to scale up its OLED TV production and raise its Gen-8 monthly capacity by 20,000 plates to reach 34,000 by the end of 2015. It is targeting OLED TV shipment of 500-600K in 2015 and 1,500K in 2016. OLED flexible displays for mobile devices and wearables. Samsung Display announced its plan to invest $3.6 billion from 2015 to 2017 in OLED display production, and its plan to ramp up production of flexible OLED display in the second quarter of 2015. LG has Gen-4.5 flexible display line with an installed capacity of 14,000 plates per month. There is speculation that new Apple smartwatches may use OLED flexible displays supplied by LG. LG is also planning to invest in Gen-5 production line in 2017. Samsung is planning to market its small-to-medium OLED displays to a broader range of products and customers. This can help boost production scale and make OLED to be more cost competitive against LCD. New players in OLED displays. AU Optronics has engaged in initial production of OLED displays for smartwatches. Foxconn is considering starting OLED production in 2016 or 2017.Commercial OLED display production in China may start in 2016. J-OLED consortium in Japan is setting up OLED test production line.

Canaccord Genuity’s Jed Dorsheimer reiterates a Hold rating, while raising his price target to $30 from $23, writing that “we view 2015 as a transitional year for OLED technology.”

“As material sales have been reset due to green host at Samsung, we see the upside/downside scenario largely hinging upon the success or failure of large area OLED TVs later in 2015 and beyond,” he adds.

At the moment the lack of visibility leaves us on the sidelines, but we will be tracking this transition closely through 2015. With only one TV SKU available in the market and more to potentially come later in the year, we believe it’s too early to make a call on the success or failure of OLED TVs at LG. However, we believe this will be key to OLED shares in 2015 and beyond.

The company’s balance sheet is strong, he notes:

UDC maintains a strong balance sheet with $288.5M in cash, cash equivalents and short term investments. The company has no debt. Cash increased from $268.4M last quarter. In June 2014 UDC approved a stock repurchasing plan, and the company has thus far accumulated $29.5M of shares out of a total $50M approved in the plan.

Dorsheimer raised his 2015 numbers to $210.8 million and $1.08 per share from a prior $206.1 million and 95 cents.

Shares of camera sensor maker OmniVision Technologies (OVTI) are up 84 cents, or 3.2%, at $27.35, after the company this afternoon reported fiscal Q3 revenue in line with analysts’ expectations, but beat on the bottom line, projected results this quarter well ahead of consensus.

Revenue in the three months ended in January fell 17%, year over year, to $292.3 million, yielding EPS of 38 cents, excluding some costs.

Analysts had been modeling $292 million and 29 cents.

The company’s gross profit marginrose to 22% from 19.6% a year earlier. The company said it experienced improvements in production that aided profit, though some prices experienced pressure.

CEO Shaw Hong warned of possibly unpredictable results in the near future:

As we continue to expand in Asia and find new opportunities in emerging economies, our results may continue to be volatile, at least in the near-term. However, it is important for us to participate in these markets as they are integral to our strategy. We remain confident about our long-term growth prospects.

For the current quarter, the company projects revenue of $265 million to $295 million, and EPS of 15 cents to 31 cents, on a non-GAAP basis. That is ahead of the average estimate for $263 million and 12 cents.

Shares of storage technology vendor Emulex (ELX) are up $1.56, or almost 25%, at $7.92, in late trading, after wireless chip maker Avago Technologies (AVGO) this afternoon said it would acquire the company for $8 per share in cash, for a total consideration of $609 million including Emulex’s cash and debt.

Said Avago CEO Hock Tan, “Emulex’s connectivity business fits very well with Avago’s existing portfolio serving the enterprise storage end market.”

Avagosimultaneously reportedfiscal Q1 revenue and earnings that topped analysts’ expectations, and also beat consensus with its outlook for this quarter.

Revenue in the three months ended in January, on a non-GAAP basis, more than doubled to $1.67 billion, yielding EPS of $2.09. Analysts had been modeling $1.64 billion and $1.95.

Non-GAAP gross margin was 59%, up from 58% in the prior quarter and 52% a year earlier.

For the current quarter, the company sees revenue being in a range of down 3% to up 1% from Q1′s level. That equates to $1.61 billion to $1.68 billion. Analysts have been modeling $1.54 billion. The company sees gross profit margin of 57.5% to 59.5%.

The Street today is reviewing some things gleaned from the Society for Optics and Photonics (SPIE) conference on “advanced lithography” going on in San Jose, California, this week, which has implications for the semiconductor industry, and especially for companies that develop lithographic tools for chip making, such as ASML Holding (AMSL).

In particular, there was a bit of news regarding ASML’s tools for “extreme ultraviolet lithography,” or EUV, which is supposed to be key to the transition to smaller transistors.

One customer, Taiwan Semiconductor Manufacturing (TSM), reported progress in using ASML’s tools. And there were also positive comments from South Korean memory chip maker SK Hynix (000660KS)

One analyst who was impressed with all that was Timothy Arcuri with Cowen & Co., who has a Buy rating on ASML stock, and a $110.07 target. Today he focuses on Hynix’s remarks in a note to clients:

Hynix, a very pragmatic ASML customer, presented data that was less robust than TSMC but equally promising. With its NXE:3300 installed late ’14, the company has exposed ~1700 wafers over a recent 3 day endurance test (~500 wpd) that is up from 7 wph in May ’14 on the NXE:3100. Hynix is focused on pushing the source but sees resist as even a greater bottleneck at this point. Relative to mask inspection, Hynix plans to circumvent the technology questions by inspecting at the wafer level – a near-term work-around, but admittedly not sufficient beyond 100W. In short, Hynix achieved comparable yields for EUV 1x as compared to immersion multi-pass but the entire process still needs to be verified with more volume.

Likewise, Mehdi Hosseini of Susquehanna Financial Group, reiterating a “Positive” view of ASML, and a $140 price target, writes today that “Slowly but Surely EUV is Coming to a Town Near You…”

Writes Hosseini, the TSM talk may prompt Samsung Electronics (005930KS) to do more with EUV:

The nay-sayers may now say despite continued improvement on the EUV throughput, the ecosystem is not ready, especially since KLAC is not funding the development of Actinic inspection. However, we note ASML is actually working on an alternative to Actinic which could potentially lead to chipping away at the importance of KLAC on the road to the commercialization of EUV ASML’s work, in our view, can at least help put incremental pressure on KLAC to make concessions and increase R&D. Additionally, with TSMC so far grabbing all the headlines on the EUV front while Samsung is already at 14nm, we believe it is only a matter of time before Samsung foundry comes up with their own EUV progress as a means to illustrate their competitiveness against TSM.

Hosseini offers the following infographic of how EUV is making progress:

Less impressed is Robert Maire of Semiconductor Advisors, also attending the show, who writes that ASML got a boost from TSM, though he characterizes the news as “ho hum” and “not a positive surprise”:

At the opening of the SPIE conference ASML announced that TSMC had reached 1000 wafers a day “exposed” (not printed or produced) by TSMC. This is significant in two ways; though still just a simulation and not a real test of real wafer production it is a higher theoretical number than the test numbers “leaked” out by IBM over 6 months ago. The second and perhaps more important is that the test was run by a real contender in the semiconductor arms race, TSMC who last year embarrassed ASML at SPIE by announcing that the tool had shot itself in the foot. This would seem to imply that TSMC is more supportive which is also evidenced by their continued purchases of tools.

The problem still for ASML, writes Maire, is that the semi industry has an “aversion to change,” and has gotten used to the technique of “multi-patterning” to make smaller chip features.

The reason for our concern about progress rates is that the industry and Moore’s law is not waiting around for EUV to catch up. From discussions with a number of people at the show its clear that 10nm is long gone (as has been known by those in the industry) but the new question is how much, if any, of 7nm can ASML catch. Whereas there never seemed much very serious talk of ASML making 10nm (except by ASML) there is a lot of speculation about a 7nm intercept.

Another analyst taking a mixed view of the AMSL news is Credit Suisse’s Farhan Ahmad, who has a Neutral rating on the ordinary shares of ASML (ASML), and an €84 price target, also notes the positive implication of TSM’s remarks, but writes that there are still many risks to EUV for ASML:

We view TSMC results as incremental positive and indication of continued progress on EUV. While EUV data-points were largely positive, there are still risks to long term EUV opportunity. In particular (i) Source power is still well below target of 250W, that has been indicated by TSMC as requirement for commercial adoption of EUV (ii) Current resist require 30mJ dose versus target of 20mJ. Higher dose resist can lead to ~30% lower throughput at given power level, (iii) DSA/ Nano-imprint are also making significant progress and could be adopted on critical layers in Memory.

Summit Research’s Srini Sundararajan, who has a Buy rating on KLA-Tencor (BUY), and a $75 price target, writes that the company featured prominently in the discussion of ASML and EUV by TSM, and that TSM seems to be making KLA’s participation a priority:

It was a surprise to hear [TSM's] Dr. Yen mentioning use of KLA-Tencor’s tools for defect inspection in this effort. We felt that he could easily have ignored it, but, since he did not, we think that TSMC wants KLA-Tencor to be very much involved in the EUV ecosystem…. especially for the actinic (at EUV wavelength) patterned mask inspection tool. However, KLAC has mentioned that cost-benefit analysis suggests investments from chipmakers are necessary to make the effort worthwhile (as ASML requested from their customers). Though KLAC has Likely Already Started With an Small Effort Towards Actinic Mask Inspection: The mention of KLAC at least more than twice in an EUV talk by Dr. Yen suggests that KLAC’s expertise in delivering a robust tool for actinic inspection is being recognized as necessary. And our checks seem to suggest that KLAC has started working on it, though the effort needs upscaling. Additionally No More e-beam Litho Skunkworks Program….Our checks suggest that KLA-Tencor has retired its efforts towards an e-beam lithography tool.

Sundararajan adds that “the SPIE paper roster was agog with KLA-Tencor papers; so many in fact, that for the first time, it was categorized by region of the world!”

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.